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How Cliffs Natural's Leadership Will Help Shareholders Win

Can the resource company's leaders boost your returns?

I've been looking at Cliffs Natural Resources (NYSE:CLF), a big supplier of iron ore and metallurgical coal for steel production. Cliffs has taken advantage of huge demand for steel to grow into an industry giant, but that has left it exposed to recent fears of a global slowdown. But does Cliffs have leaders at the top who can lead the company past its challenges to even greater success?

My premium report on Cliffs Natural Resources goes into more detail on this natural-resources company and includes the following description of its CEO and management team. Let's take a closer look at who's running the show at Cliffs Natural.

LeadershipCEO Joseph Carrabba has been at the helm at Cliffs Natural since September 2006. Prior to that, he served as chief operating officer at the company, and worked for 22 years at Rio Tinto (NYSE:RIO) before coming to Cliffs in 2005.

Carrabba also serves on Cliffs Natural's board of directors, where he's been chairman since 2007. He also serves on the boards of Newmont Mining (NYSE:NEM) and KeyCorp (NYSE:KEY).

Like many CEOs at large corporations, though, Carrabba doesn't have perfect alignment of his incentives with those of shareholders. Carrabba owns about a quarter million shares worth almost $10 million at current prices, but that represents less than a 0.2% stake in the overall company. Meanwhile, Gardner earned almost $6.4 million in compensation in 2011, with $3.1 million of that coming from stock awards. Although some of Carrabba's awards are performance-based, his compensation still rose in 2011 despite a decline in the stock's price. Moreover, the proxy statement to the 2012 annual shareholders' meeting details terms of Carrabba's employment agreement, whereby he would receive between $9 million and $11 million in termination payments at his retirement or involuntarily termination, or upon a change of control. Those payments can rise to more than $30 million if Carrabba is terminated without cause after a change of control, even if he voluntarily leaves or is terminated for cause, he still would receive more than $4 million in retirement benefits and deferred compensation.

Nevertheless, it's easy to argue that Carrabba has earned a sizable compensation package. As a newly installed CEO six years ago, he played an instrumental leadership role in the transformation of Cliffs Natural from being a North American-focused iron ore producer to taking on global significance in both iron ore and coking coal. Stretching beyond its roots in the U.S. Great Lakes region, Cliffs bought assets in Brazil and Australia in order to supply global demand more efficiently. Without Carrabba's experience at Rio Tinto, itself a major mining company with operations across the globe, Cliffs might never have expanded to the scope it has now. As Carrabba himself put it in 2009, "If we had remained North American-centric, I don't know how we would have survived. Our people took a lot of personal sacrifices and gave up a lot so we could make it."

Taking the next stepIn general, Carrabba appears to have the support of his employees. According to Glassdoor, 100% of those rating Carrabba approve of his job performance as CEO, although very few employees have provided a rating.

With Joseph Carrabba at the helm, Cliffs Natural has the leadership it needs to get through tough times and continue its quest for global domination. Investors might prefer that he put more of his own money toward taking a bigger personal stake in the company, but he has still done a good job of giving shareholders the long-term returns they want -- albeit with plenty of volatility along the way.

Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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